Udemy’s stock price has taken a beating over the past six months, shedding 27.2% of its value and falling to $7.10 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Udemy, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Udemy Not Exciting?
Even though the stock has become cheaper, we're swiping left on Udemy for now. Here are three reasons you should be careful with UDMY and a stock we'd rather own.
1. Customer Spending Decreases, Engagement Falling?
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the average buyer spends. ARPB is also a key indicator of how valuable its buyers are (and can be over time).
Udemy’s ARPB fell over the last two years, averaging 1.3% annual declines. This isn’t great, but the increase in monthly active buyers is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Udemy tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyers can continue growing at the current pace. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Udemy’s revenue to stall, a deceleration versus This projection is underwhelming and implies its products and services will face some demand challenges.
3. Poor Marketing Efficiency Drains Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Udemy grow from a combination of product virality, paid advertisement, and incentives.
It’s very expensive for Udemy to acquire new users as the company has spent 64.8% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between Udemy and its peers.
Final Judgment
Udemy isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 11.2× forward EV/EBITDA (or $7.10 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
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